G20 ponders the risks of devaluation

MOSCOW Federal Reserve Chairman Ben Bernanke indicated Friday that the United States does not intend to censure Japan for weakening its currency over the last several months, something that has aided Japanese exporters and angered competitors.

Bernanke spoke in brief introductory remarks at a conference in Moscow of the Group of 20, a club of the world's largest industrial and emerging economies.

At issue are stimulus programs backed by Prime Minister Shinzo Abe, who is also maintaining pressure on the Bank of Japan to keep interest rates near zero and flood the economy with money to support manufacturers.

As a result, the yen has lost about 15 percent of its value against the dollar over three months, meaning products made in Japan are relatively cheaper.

Japan's maneuver touched off fears that other countries and the European Union might follow suit in a so-called currency war.

Initially, it seemed the world's largest economies might agree on a statement at the end of the meeting condemning competitive devaluations, a tactic widely seen as a beggar-thy-neighbor approach to creating growth that would ultimately harm a global recovery – and thought to be a cause of the lingering depression in the 1930s.

Bernanke, an advocate of the loose monetary policy in the United States known as quantitative easing, but also a student of the Great Depression, suggested a distinction should be drawn based on the intention of the monetary easing.

“The United States is using domestic policies to advance domestic agendas,” Bernanke said.

“We believe that by strengthening the U.S. economy, we are helping to strengthen the global economy as well,” he said. “We welcome similar approaches by other countries.”

He said he endorsed an earlier statement at the meeting from Christine Lagarde, director of the International Monetary Fund, who said the risk of currency war was “overblown.”

The global recovery has become unbalanced, Lagarde said. Developed countries are swooning, while the emerging markets bounced back quickly, and yet such countries, including Russia, have been critical of the stimulus efforts of the developed nations. Japan's devaluation is “sound policy,” she said.

“The international monetary system can function effectively if each country follows the right policies for their domestic economies.”

Anton Siluanov, Russian finance minister and the host of the meeting, has been pushing for a strong statement against competitive devaluations.